Home buying advice

[janie1234]

Hello everyone. I was hoping for some advice from all you home owners out there. So I'm in California and it just so happens I house hunting. I'm a total house hunter virgin so I don't know anything about what to do. My dad has given me some really great advice but I wanted to know everyone's thoughts on shopping around for homes above your budget. My husband and I saw a home we really liked. Pretty much turn key but requires a new roof, fence, and upgrading in the bathrooms. It is listing for $400,000 buy my budget is $350,000. Now with all the things that need to be fixed and closing costs I was thinking of asking for $320,000. Is that grossly unreasonable? I saw this article
http://homebuying.about.com/od/homeshopping/a/Buyoverprice.htm and my parents have told me that a lot of their friends are really benefiting from the buyers market and buying houses at 50% off of listing price. Thanks in advance to anyone who responds with advice. By the way what are your thoughts on real estate agents?

 

[hiitdogs]

Congratulations on purchasing a new home! That is awesome, I am so excited for you. It is a good market to buy. In a "normal" market I probably would advise against shopping in a price range above your budget because you'll be setting yourself up for disappointment, however, in a down market like this I don't see a problem.

I am not familiar with your area but where I live people look and accept almost any offer. It's the difference between not selling at all or selling at a loss or for some lucky ones selling for less of a profit.

If would try find out

• What has sold in that neighborhood in the last 2 to 3 months?
• Were those prices lower than 6 months ago (declining market?) and if so, how much?
• What is the home owner's motivation? Distress sale? Relocation? Foreclosure?
• Is this a bank owned home?
• How much does the owner owe on the mortgage?
• How much is the actual cost of repair (estimate on the high side)?

There is a distinct difference between the listing price and the actual value of the home. Market value of a home will be what a ready, willing and able buyer is willing to pay for a house at a certain location, in a certain condition, in a certain market. Unless a house is listed grossly overpriced I do not believe that you will find a home that you can buy 50 % under market value, the listing price really is meaningless.

What I mean by that is if there is a house on the market for sale and a similar home down the street has sold for say $ 350k, it is VERY unlikely that you will get the home for $ 175k, even if it is a foreclosure or distress sale. People and banks will sell for 10 or maybe even 20 % below what a comparable home has sold for if they have an offer from a strong buyer (meaning either cash funds or verifiably qualified by a lender) who can close fast and doesn't have many contingencies.

If that same house is listed $ 450k, yeah, you can get it 50 % below the listing price. Therefore, it is really important to know what the homes in the neighborhood have sold for.

If you want a really good deal I would suggest that you have to be prepared to play hardball and be willing to walk away. Aside from the occassional exception the seller will work with you.

As to real estate agents, I think a good real estate agent will be worth every penny, saving you a lot of money and headache, a bad real estate agent .... ummmh run, far and fast.
Real estate agents can help you find the home, find good deals, educate you about the market, the contract, home inspections, the escrow, ensure a smooth transaction and everything that goes into buying a house and beyond.

You have to find the one that is more concerned about doing what is right for their client and the client being taken care of. And stay away from the ones whose primary concern is their commission check. It is not always easy to separate the good from the bad.

It doesn't cost you as the buyer anything to be represented by a real estate agent. I would definitely meet with a few agents for a buyer consultation, at the very least you get more information about the home buying process, the current market, you can pick their brain and see how you go from there. Getting more information is always a good thing

I don't want to get too long winded here and tell you things that you may already know but I will be happy to answer any questions, either here on the forum or feel free to PM me.

Disclaimer: I have been a real estate agent for the past 11 years in Arizona. I am not familiar with your area although the real estate is practiced very similar in CA and AZ.

 

[janie1234]

Oh my Carola! Thank you! Thank you! That was soooo helpful. I've even printed it out and showed it to my husband. I really appreciate it. Buying a house is kinda scary. I refuse to buy beyond my means just so I can have a fancy kitchen. I couldn't believe how many forclosures were out there. Thanks again!!

 

[amyg]

By all means GET A REALTOR!!! A home purchase is a huge commitment and headache, not to mention it requires specific knowledge and experience. Please please PLEASE find a good one for yourselves!!!
this link might help: http://www.dre.ca.gov/cons_home.html

(I'm not so much biased but I am someone who has worked in a firm of real estate attorneys for several years!)

 

[doodles-n-divas]

I am not a real estate agent....just a home buyer...and I would NEVER buy a house without a real estate agent. You are not paying for the service at all...they get paid when they sell you a house. Carola had some great advice...I just wanted to jump in as a person who is not in the real estate business at all. I have, however, purchased (as of tomorrow when I close on my newest) 6 houses in the past 9 years (don't ask...LOL! ).

Good luck and congratulations on your upcoming purchase!

 

[mrsmel]

Buying your first home is scary, but don't let that deter you! Now is the perfect time to be a first time home buyer. Carola did give you great advice and I concur about finding an agent. As she suggested, just make sure it's the right one for you. And when you get nervous, just let yourself be nervous, it's part of the process. I never thought I wanted the responsibility of a house, but now I love it! I bought my first house by myself (well, with a *tiny* bit of financial help from my parents) and then I had to sell it and move into an apartment (I moved for a job). I cried. I loved having my own home. It's an adventure and there's always something to be done, but it's ALL yours! Good luck, I hope you have fun house hunting.

anne

 

[janie1234]

Thanks everyone! This whole house buying thing is extremely stressful and in all honesty I don't know if I truly trust this realator that we've been working with. I mean he has a ton of experience, seems to know everyone in town but I don't think he's really listening to me when I tell him what we are looking for. For my family location is EVERYTHING. I mean I have kids and I want them to feel safe. I know that you still never really know who your neighbors are, . . but I am the kind of person that waves and makes cookies for everyone on the block during Christmas. He keeps trying to get me to go above budget and I refuse to give in and live beyond my means. Does he gain from that? I hate going in blind. I feel like when I go to a car mechanic.

 

[hiitdogs]

Thanks everyone! This whole house buying thing is extremely stressful and in all honesty I don't know if I truly trust this realator that we've been working with. I mean he has a ton of experience, seems to know everyone in town but I don't think he's really listening to me when I tell him what we are looking for. For my family location is EVERYTHING. I mean I have kids and I want them to feel safe. I know that you still never really know who your neighbors are, . . but I am the kind of person that waves and makes cookies for everyone on the block during Christmas. He keeps trying to get me to go above budget and I refuse to give in and live beyond my means. Does he gain from that? I hate going in blind. I feel like when I go to a car mechanic.

Do you think he tells you to up your budget a little because in your area, if you go up to say $ 400k you can find exactly what you are looking for. I have had that with a couple of clients where we went for a 4 bedroom instead of 3 bedrooms, in a different location because of school/safety etc. concerns and it turned out to have been the better investment and better choice. But I only gave them the option, we kept looking in the lower price range, in the end it is my clients money and their choice. I can give an opinion but I can't make the decision for them.

Agents usually get paid a percentage of the sales price. Most common is 3 % for the buyer's agent, it can be less, sometimes it's more. So yeah, if the buyer goes from buying a $ 100k home to $ 200k, it's a $ 6,000 commission instead of $ 3,000. If you go from $ 350,000 to $ 400,000 he/she stands to gain $ 1,500. Me personally, I don't think it's worth it to risk a longterm relationship with my client and probably losing future business over that kind of money but you got all kinds of agents out there, and they are all hurtin'.


If you think your agent doesn't listen to you and doesn't have your best interest at heart, my advice, fire him and find one who does. This is too big of an investment to stick with someone that you don't trust. Listen to your instincts!

 

[janie1234]

Do you think he tells you to up your budget a little because in your area, if you go up to say $ 400k you can find exactly what you are looking for. I have had that with a couple of clients where we went for a 4 bedroom instead of 3 bedrooms, in a different location because of school/safety etc. concerns and it turned out to have been the better investment and better choice. But I only gave them the option, we kept looking in the lower price range, in the end it is my clients money and their choice. I can give an opinion but I can't make the decision for them.

Agents usually get paid a percentage of the sales price. Most common is 3 % for the buyer's agent, it can be less, sometimes it's more. So yeah, if the buyer goes from buying a $ 100k home to $ 200k, it's a $ 6,000 commission instead of $ 3,000. If you go from $ 350,000 to $ 400,000 he/she stands to gain $ 1,500. Me personally, I don't think it's worth it to risk a longterm relationship with my client and probably losing future business over that kind of money but you got all kinds of agents out there, and they are all hurtin'.


If you think your agent doesn't listen to you and doesn't have your best interest at heart, my advice, fire him and find one who does. This is too big of an investment to stick with someone that you don't trust. Listen to your instincts!

Carola thanks, . . . that really explains things to me. I have a feeling he wants more commission. Agents in California are hurting big time. He keeps complaining about his $600 electric bill. I keep telling him we absolutely will not go over budget but he keeps pressuring me to buy houses that are remodeled and keeps asking if we have an additional $25,000-$50,000 to go over budget. How can you find out what houses have sold for in the area? Ugh, . .I hate to bother you and everyone else about all this (but I do respect the advice and opinions I've gotten here- I wish I could hug you all), but you are so right about this being to big of an investment for me to have bad vibes about this guy. I think I'm just going to move on. Sheesh all this trouble just to be able to paint my walls?

 

[dreamyjeanie]

Make sure you check out what your property taxes are going to be on the home. I have know several people who were able to buy in a down market, thus saving on the purchase price, but then not be able to afford the home later because the property taxes were based on the home value, not what it sold for.

 

[hiitdogs]

Carola thanks, . . . that really explains things to me. I have a feeling he wants more commission. Agents in California are hurting big time. He keeps complaining about his $600 electric bill. I keep telling him we absolutely will not go over budget but he keeps pressuring me to buy houses that are remodeled and keeps asking if we have an additional $25,000-$50,000 to go over budget. How can you find out what houses have sold for in the area? Ugh, . .I hate to bother you and everyone else about all this (but I do respect the advice and opinions I've gotten here- I wish I could hug you all), but you are so right about this being to big of an investment for me to have bad vibes about this guy. I think I'm just going to move on. Sheesh all this trouble just to be able to paint my walls?

I think one of the biggest complaints that people have about their real estate agents is a lack of communication. It sounds there is something missing and I am really getting the impression that your agent is not explaining things to you. It happens sometimes with agents that they forget that what is "common knowledge" to them because they deal with it on a daily basis is not so obvious to a buyer. I think one of the biggest tasks of agents is to educate their clients to enable them to make an educated decision and not just do what the agent thinks is best.


You mentioned that he is showing you only remodeled homes. Are you looking for a house that you can fix up and he just thinks it's going to cost you more to fix it up than to just buy the remodeled house. Has he explained why he showing you those homes? Has he explained anything?

Your agent should be able to get all the information for you, either when he is showing you the house or before you make an offer as to how much have homes in that area sold for, how much did the current owner buy the house for, how much does the owner owe, etc. It really is the job of an agent to get you all that information.

I don't know about where you live but in my county anyone can get the information online from the county assessor as to how much a house has sold for and what the surrounding homes have sold for. You can even pull up the recorded documents.

If you don't have that, the other option would be www.zillow.com. It's not always 100 % accurate but a pretty good starting point.

You are not bothering me at all. I told you I'd be happy to help as much as I can. If you don't want to discuss it on the forum, feel free to pm me or email me. I am not licensed in CA but I can give you general information about real estate.

Buying a house shouldn't give you that much of a headache. Yeah, there are always things that come up but my clients know that they hired me to get the headache for them.

 

[DebD]

Hi Carola,

What is your opinion of zillow.com? Our home has been going up on zillow but it seems like the homes are selling below this price. The neighborhood we are looking at the homes are going down on zillow but they are selling for above the zillow price.

This is so confusing to me. We live in NJ.

 

[hiitdogs]

Hi Carola,

What is your opinion of zillow.com? Our home has been going up on zillow but it seems like the homes are selling below this price. The neighborhood we are looking at the homes are going down on zillow but they are selling for above the zillow price.

This is so confusing to me. We live in NJ.

Zillow is not always accurate, I don't like their "zestimates" at all, I think they are totally unreliable. You can get information about what a particular home has sold for and see when it has sold. It's a painstaking and time consuming process on zillow and then you have to put it all together to decide on a price range.

The problem with zillow is that they seem to have some kind of formula as to how they calculate the home value and it seems to be like a roll of the dice. I have seen them totally off the mark by several hundred thousand $$ on higher priced homes and $ 10 to 75 k off on mid-size homes.

My clients get a yearly market analysis and estimate of their home value from me. If they need anything additional or have questions, they usually just call me or email me. Maybe you can ask the real estate agent who sold you the house. Are you in the process of selling your house?

 

[eraslan]

I wouldn't put much weight on comparable sales in this economy. There is no reason to think that anyone is pricing the houses appropriately at the moment (or since 2002-2003 for that matter), and in fact, the main reason we had a housing bubble is because people started paying for houses based on comparable sales rather than based on the fundamentals (e.g. price/rent ratio). There are many graphs out there similar to the one below that suggest that the last time the prices were meaningful were around 2002-2003.

http://1.bp.blogspot.com/_pMscxxELH.../VVCgdoz4yh4/s1600/CAPHousePriceScenarios.jpg

This graph also highlights the official stress test scenarios (in their new Capital Assistance Program) of how much the house prices will fall in 2009 and 2010 (with the baselines being 14% and 4% respectively).

I suggest first digging for comparable sales in 2002-2003 from your state's Department of Assessment and Taxation. If you cannot find that, the next best is to look at zillow's estimate of the house value as of 10 years ago (inferring it from the current estimate and "historical value trends" they report). Once you find a value estimate from a more stable time period, grow that estimated value at the inflation rate to today's values unless there were big changes such as building of a mall, opening of headquarters of a company, etc. that happened nearby the house since then. This is how I would determine my offer price if I were to buy a house now.

 

[hiitdogs]

I wouldn't put much weight on comparable sales in this economy. There is no reason to think that anyone is pricing the houses appropriately at the moment (or since 2002-2003 for that matter), and in fact, the main reason we had a housing bubble is because people started paying for houses based on comparable sales rather than based on the fundamentals (e.g. price/rent ratio). There are many graphs out there similar to the one below that suggest that the last time the prices were meaningful were around 2002-2003.

http://1.bp.blogspot.com/_pMscxxELH.../VVCgdoz4yh4/s1600/CAPHousePriceScenarios.jpg

This graph also highlights the official stress test scenarios (in their new Capital Assistance Program) of how much the house prices will fall in 2009 and 2010 (with the baselines being 14% and 4% respectively).

I suggest first digging for comparable sales in 2002-2003 from your state's Department of Assessment and Taxation. If you cannot find that, the next best is to look at zillow's estimate of the house value as of 10 years ago (inferring it from the current estimate and "historical value trends" they report). Once you find a value estimate from a more stable time period, grow that estimated value at the inflation rate to today's values unless there were big changes such as building of a mall, opening of headquarters of a company, etc. that happened nearby the house since then. This is how I would determine my offer price if I were to buy a house now.

You want to go 6 or 7 years back to determine the value of a house in today's market??? Or take the zillow estimate from 10 years ago?? I am not sure I am following that rationale?

I am not sure why a price/rent ratio would be a fundamental determining factor in home value. Rental rates are very dependent on supply and demand at any given time and can fluctuate wildly, even more so than home prices.

I'd say it's a lot more accurate to look at what comparable houses have sold for 2 or 3 months ago and adjust the price depending on if the neighborhood has an upwards, downwards or stable trend. It will be mostly downwards but believe it or not there are some areas that still do well.

If a similar home with similar features and location has sold for $ 300,000 in January of 09 I would say it is a value that an appraiser would use for a house that sold in February 09, more so than a value from 7 years ago. As an agent or as a homebuyer, I would offer well below that and see what happens. In an unstable market like that I wouldn't offer what the home is "worth". In this market there really is no determining the value of a home anyway, it's a crapshot but you take recent sales as a general guideline. A house is worth what a serious, ready and able buyer is willing to pay both in a stable and an unstable market. An unstable market is where you are more likely to find bargains and better deals.

During the housing bubble people weren't looking at comparable sales at all. That is one of the reasons why it spun out of control. The link to the graph doesn't appear to work but it sounds like the 14 and 4 % baselines are nationwide averages. I think determining a price of a home in any given area involves a lot more than national averages and values from 10 years ago.

If you take the price from a "more stable" period and adjust for inflation I'd say there is a good chance you overpay.

 

[eraslan]

You want to go 6 or 7 years back to determine the value of a house in today's market??? Or take the zillow estimate from 10 years ago?? I am not sure I am following that rationale?

I am not sure why a price/rent ratio would be a fundamental determining factor in home value. Rental rates are very dependent on supply and demand at any given time and can fluctuate wildly, even more so than home prices.


I'd say it's a lot more accurate to look at what comparable houses have sold for 2 or 3 months ago and adjust the price depending on if the neighborhood has an upwards, downwards or stable trend. It will be mostly downwards but believe it or not there are some areas that still do well.

If a similar home with similar features and location has sold for $ 300,000 in January of 09 I would say it is a value that an appraiser would use for a house that sold in February 09, more so than a value from 7 years ago. As an agent or as a homebuyer, I would offer well below that and see what happens. In an unstable market like that I wouldn't offer what the home is "worth". In this market there really is no determining the value of a home anyway, it's a crapshot but you take recent sales as a general guideline. A house is worth what a serious, ready and able buyer is willing to pay both in a stable and an unstable market. An unstable market is where you are more likely to find bargains and better deals.

During the housing bubble people weren't looking at comparable sales at all. That is one of the reasons why it spun out of control. The link to the graph doesn't appear to work but it sounds like the 14 and 4 % baselines are nationwide averages. I think determining a price of a home in any given area involves a lot more than national averages and values from 10 years ago.

If you take the price from a "more stable" period and adjust for inflation I'd say there is a good chance you overpay.

I would like to go 6-7 years ago but zillow does not have that estimate. That's why as a quick check I suggest looking at price estimate from 10 years ago in zillow. Then growing that estimate at the inflation rate (again, subject to no major changes in the neighboorhood that would justify a higher or lower rate) would give the best estimate. The rationale is that there was a bubble in the housing market since 2003 or so, and though the bubble burst now, prices are still not stable. Noone knows if the market has more correction to do, or has overreacted. Looking at prices from a stable time period and estimating today's value from that would fix the problem.

What you are saying is that because we cannot estimate rents well, it is hard to estimate prices as well. I agree, and that's why I don't recommend determining value using price rent ratio in this economy, because rents are cliff diving as well. But it is still one of the fundamental measures of the house values (along with other measures). The economists who were shouting out loud that there was a housing bubble for a long time even before the bubble burst was basing it mainly on the observation that price/rent ratios were far away from their historical averages.

At this point, the key concern is not whether a house is over or undervalued relative to others in the market, but whether the market (be it a national or local market) over or undervalued in itself. That is why the comparable house transactions in the last 2-3 months could be grossly off.

P.S. I got the graph from http://www.calculatedriskblog.com/. There are many graphs there. This was from the post titled "Stress Test House Price Scenarios."

 

[hiitdogs]

I would like to go 6-7 years ago but zillow does not have that estimate. That's why as a quick check I suggest looking at price estimate from 10 years ago in zillow. Then growing that estimate at the inflation rate (again, subject to no major changes in the neighboorhood that would justify a higher or lower rate) would give the best estimate. The rationale is that there was a bubble in the housing market since 2003 or so, and though the bubble burst now, prices are still not stable. Noone knows if the market has more correction to do, or has overreacted. Looking at prices from a stable time period and estimating today's value from that would fix the problem.

What you are saying is that because we cannot estimate rents well, it is hard to estimate prices as well. I agree, and that's why I don't recommend determining value using price rent ratio in this economy, because rents are cliff diving as well. But it is still one of the fundamental measures of the house values (along with other measures). The economists who were shouting out loud that there was a housing bubble for a long time even before the bubble burst was basing it mainly on the observation that price/rent ratios were far away from their historical averages.

At this point, the key concern is not whether a house is over or undervalued relative to others in the market, but whether the market (be it a national or local market) over or undervalued in itself. That is why the comparable house transactions in the last 2-3 months could be grossly off.

P.S. I got the graph from http://www.calculatedriskblog.com/. There are many graphs there. This was from the post titled "Stress Test House Price Scenarios."

I am not saying we can't estimate rents well, I am saying rents fluctuate and are even more volatile than home prices. Why would you base your home price on rental prices? Rental prices are taken into consideration for an appraisal if the home is purchased as an investment/rental property but that is a whole different story. That is not so much to determine value of the home but determining if the buyer /investor is qualified (meaning will he/she be able to rent that home out and pay the mortgage and does he/she have the income/assets to support it if the rent can't be realized for periods of times).

I am not sure how zillow (which is notoriously inaccurate) estimates from 10 years ago adjusting it for inflation to 7 years ago would be a more accurate measure than taking a price of how much a home actually sold for 2 months ago and adjust it for possible further market decline. Evaluating the home like you suggest would probably be more in the interest of the seller than the buyer.

Did you get that advice from the blog that you mentioned above? I have no idea what professional, economical or financial standards this advice could possibly be based on.

You make a good point that the prices are still not stable, I agree with that. I wouldn't base my opinion of price on a single home that has sold in a neighborhood to determine the price of another home. Why would I compare prices in an unstable market with prices from a period of stability? I have to look at the current market and market trends plus a whole host of other determining factors.

 

[eraslan]

I am not saying we can't estimate rents well, I am saying rents fluctuate and are even more volatile than home prices. Why would you base your home price on rental prices? Rental prices are taken into consideration for an appraisal if the home is purchased as an investment/rental property but that is a whole different story. That is not so much to determine value of the home but determining if the buyer /investor is qualified (meaning will he/she be able to rent that home out and pay the mortgage and does he/she have the income/assets to support it if the rent can't be realized for periods of times).

I am not sure how zillow (which is notoriously inaccurate) estimates from 10 years ago adjusting it for inflation to 7 years ago would be a more accurate measure than taking a price of how much a home actually sold for 2 months ago and adjust it for possible further market decline. Evaluating the home like you suggest would probably be more in the interest of the seller than the buyer.

Did you get that advice from the blog that you mentioned above? I have no idea what professional, economical or financial standards this advice could possibly be based on.

You make a good point that the prices are still not stable, I agree with that. I wouldn't base my opinion of price on a single home that has sold in a neighborhood to determine the price of another home. Why would I compare prices in an unstable market with prices from a period of stability? I have to look at the current market and market trends plus a whole host of other determining factors.

All I am saying is that comparable sale prices in the last few months or last few years are meaningless and I myself would not use it to determine a price on a house I am buying or selling.

Instead, I would 1) figure out an estimate from a stable period ideally using actual transaction prices (from state's assesment and taxation department) 2) make adjustments to that estimate based on i) inflation, ii) what was happening in the neighborhood, iii) improvements within the house.

Everything else is related but tangential to my main point.

 

[janie1234]

Okay, . . hmmm, . now I'm confused. If I were to go back to house prices back in 2004-2005 the prices for homes sold back then were almost doubled what they are now. Most of the houses 3 bedroom 2 bath in the area I'm interested in are selling for $300,000-$400,000 depending on the condition of the home. Back in 2004-2005 these same houses were selling for almost double $500,000-$650,000. I mean that is a huge difference!
By the way Carola thanks for the website I'll check it out and thanks to everyone who responded to my cry for help and advice.
Carola I told the guy I was not opposed to a flip but it seems to be going in one ear and out the other. The main thing was location and to stay within budget and if he showed us a house that needed work that we could knock off some just to compensate for the upgrades (and I'm not talking over priced top of the line upgrades either). I don't think that he's listening to me at all. I really wished that he shared all your views. I'm just exhausted. I spent my last 2 days off looking at over 12 houses 10 of which were all over budget, . . ho hummm. It just seemed like he was trying to show me as much as he could and although I have a good memory for what I've seen my husband couldn't process it all. As much as I love living in California it just seems that everything is just so expensive here. I'm sure my budget would get me a whole lot else where.

 

[eraslan]

But 2004-2005 is already after the bubble. I would first get an estimate from a period before the bubble started.

For example: take a house that was worth $100,000 February 2003. At an approximate annual inflation rate of 3% for 6 years (from 2003 February), it should have increased approximately 20% in value. So I would guess this house is worth $120,000 approximately. I would then make adjustments to this estimate based on what was happening in the neighborhood, the improvements in the house, etc.

If a similar house sold at a significantly higher price than my final estimate, I would interpret it as market has more correction to do. If a similar house sold at a significantly lower price, I would interpret as market has overreacted.

At this point, for the national market, most professional forecasters expect further correction--i.e. prices are expected to fall further.

Anyhow, if you PM me, I would be happy to give more specific advice.